David Feldman

Three Things to Know in Energy This Week – 10/24/2106

Blog Post created by David Feldman Champion on Oct 23, 2016

1. Russia and Saudi Arabia sign memorandum of cooperation concerning oil and gas sectors.


Russian Minister of Energy Alexander Novak arrived in Saudi Arabia on Monday for meetings regarding the oil, gas, and electricity sectors of the two countries.  After discussions, Saudi Minister Energy, Industry and Mineral Resources Khalin bin Abdel Aziz al-Falih stated that the viewpoints of the two countries is getting closer and they have already begun implementation of a number of joint projects, including the exchange of experience and technologies in the oil and gas sectors.


This news comes prior to the November 30th OPEC meeting where it is anticipated they will determine which members will reduce their output and by how much.


2. Surprising inventory decline spurs an oil and energy ETF rally.


Global excess has continued to weigh down oil prices and the energy markets, but with the news from the U.S. Energy Information Administration that U.S. crude storage levels declined for yet another week (bigger-than-expected 5.2 million barrels in the week ended October 14), the market seemed to react favorably. 


In the equities market, oil services-related ETF’s (exchange traded funds) led gains last week.


VanEck Vectors Oil Service ETF (NYSEArca: OIH) was up 3.6%


SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) was up 3.7%


iShares Dow Jones U.S. Oil Equipment Index ETF’s (NYSEArca: IEZ) was up 3.6%


And the broader Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF, was up 2.1%


3. Caelus Energy announced last week it made one of the largest U.S. oil finds in recent history.


On Alaska's North Slope, Caelus Energy discovered nearly 6B barrels of light oil in the shallow waters of Smith Bay.  Although it may not be able to supply oil to the Trans-Alaska Pipeline until approximately 2022, the independent driller is hoping that a discovery this large and production on that scale could help turn the tide for an energy-dependent state whose oil output has been in decline for three decades.


However, there are some challenges ahead for both Caelus and the state of Alaska to work out a deal.  The two-year oil price downturn forced Alaska to pare down their tax incentives that were implemented to attract fossil fuel explorers like Caelus Energy in the first place.  And concurrently, the Democratic presidential front-runner Hillary Clinton has stated she will seek to eliminate $60 billion in federal tax benefits and loopholes for the energy industry, and push for policies aimed at building more renewable fuel sources and reducing U.S. oil consumption.


Yet even with these obstacles, the state of Alaska and Caelus Energy are confident they can arrange a beneficial agreement for both parties concerning the new discovery.